Drivers for the Week of September 12, 2021

September 12, 2021
Here's a look at the main drivers in Developed Markets this week.
  • August retail sales data Thursday will be the data highlight; August CPI will also be closely watched; regional Fed manufacturing surveys for September will start rolling out; Canada data highlight will be August CPI Wednesday
  • ECB asset purchases for the week ending September 10 will be reported; eurozone data is limited this week; U.K. reports some key data
  • Japan reports some key data this week; Australia reports August jobs data Thursday; New Zealand reports Q2 GDP data Thursday


After the post-jobs report sell-off, the dollar came roaring back. The dollar was up against every major currency last week, with NOK and JPY outperforming and AUD and CAD underperforming. The greenback did well against EM as well, with ZAR, IDR, MXN, CNY, and TWD the only ones able to eke out small gains. CLP, TRY, and PLN were the worst performers. We admit to being wrong last week. While we have remained positive on the dollar, we thought that the hangover from the jobs report and lack of any top tier U.S. data would keep the dollar under pressure. This week, it will be up to the data to keep the dollar rally going.

August retail sales data Thursday will be the data highlight. Did consumption hold up as job growth slowed that month? Headline sales are expected to fall -0.8% m/m vs. -1.1% in July, while ex-autos are expected to fall -0.1% m/m vs. -0.4% in July. The so-called control group used for GDP calculations is expected to fall -0.1% vs. -1.0% in July. After retail sales weakened in July, there was speculation (later borne out by personal spending data) that consumers were shifting from goods to services. Still, with enhanced unemployment benefits ending in September, there are some potential consumer headwinds ahead. That’s why it’s so important for job creation to continue.

University of Michigan consumer confidence ties into this question about consumption. Preliminary September reading will be reported Friday and is expected at 72.0 vs. 70.3 in August. That August reading was the lowest since April 2020 and so some recovery would b welcome. Confidence is clearly suffering from the spread of the delta variant, but also but rising inflation and uncertainty about the economic outlook.

August CPI will also be closely watched. Headline is expected to ease a tick to 5.3% y/y, while core is also expected to ease a tick to 4.2% y/y. We see some upside risks here since last week, PPI came in higher than expected, with headline rising 8.3% y/y vs. 7.8% in July and core rising 6.7% y/y vs. 6.2% in July. Furthermore, the Fed Beige Book noted that more businesses across the nation were finding it easier to pass through higher costs to their customers.

Due to the media embargo ahead of the September 21-22 FOMC meeting, there will be no Fed speakers this week. Last week, most Fed officials sounded as if they are looking through the weak August jobs report and still want to taper this year. Mester said Friday that “I don’t think the August employment report has changed my view that we’ve made substantial further progress. I would like us to begin tapering sometime this year.” This followed similar comments from Williams, Bowman, and Kaplan last week. Our best guess is that the Fed announces a formal timeline for tapering at the November 2-3 meeting and starts tapering at the December 14-15 meeting. Sure, it’s possible the Fed waits until January but really, why wait?

Regional Fed manufacturing surveys for September will start rolling out. Empire survey kicks things off Wednesday and is expected at 18.0 vs. 18.3 in August. Philly Fed will follow Thursday and is expected at 19.0 vs. 19.4 in August. August IP will also be reported Wednesday and is expected to rise 0.4% m/m vs. 0.9% in July. The August Fed surveys were mostly softer but down from historically high levels. Some moderation is to be expected but we see underlying strength continuing in the U.S. manufacturing sector.

Canada data highlight will be August CPI Wednesday. Headline is expected at 3.9% y/y vs. 3.7% in July, while common core is expected to remain steady at 1.7% y/y. Canada also reports July manufacturing sales (-1.0% m/m expected) Tuesday, August existing home sales Wednesday, and August housing starts and July wholesale trade sales (-2.0% m/m expected) Thursday.

Last week, the Bank of Canada delivered a dovish hold. Afterward, Governor Macklem set forth its timeline for removing accommodation because “As the recovery progresses, we are moving closer to a time when continuing to add stimulus through QE will no longer be necessary. We are not there yet. That timing is a monetary policy decision that will depend on economic developments." Macklem said that after QE ends, the bank will pivot to a "reinvestment phase" that will reinvest maturing securities to maintain the size of its balance sheet. He said those purchases likely will average about CAD1 bln per week, adding that "Eventually, the reinvestment phase will end, and we will stop purchasing bonds to replace the ones that are maturing. It is reasonable to expect that when we do eventually need to reduce monetary stimulus, our first move will be to raise the target for the overnight rate - our policy interest rate."


ECB asset purchases for the week ending September 10 will be reported. This weekly number has taken on more importance after the ECB last week announced that it would aim for a more “moderate” pace going forward. Net purchases were EUR16.7 bln for the week ending September 3 vs. EUR11.5 bln for the week ending August 27 and EUR16.6 bln for the week ending August 20. The ECB has been aiming for net weekly purchases of around EUR20 bln since the accelerated pace began in March but have fallen a bit short in recent weeks due to thin market conditions over the summer. Now, it will likely take a few weeks to figure out what the new pace will be.

Eurozone data is limited this week. July IP will be reported Wednesday and is expected to rise 0.6% m/m vs. -0.3% in June. July trade data will be reported Thursday, where a surplus of EU14.9 bln is expected vs. EUR12.4 bln in June. July current account data will be reported Friday. With the economy firm and inflation high, the ECB hawks won the battle by engineering a modest slowdown in asset purchases. However, many more battles lie ahead. Lagarde said that the decision about the future of PEPP would be made at the December 16 meeting. This basically renders the October 28 meeting a non-event. However, we expect the hawks and the doves to stake out their positions ahead of December. As always, much will come down to how the data come in between now and then.

U.K. reports some key data. Labor market data will be reported Tuesday. Unemployment for the three months ending in July is expected to fall a tick to 4.6%, driven by an expected 199k rise in employment during that same period. Average weekly earnings are expected to slow a bit during the same period, but at 8.2% y/y remain quite strong. August CPI will be reported Wednesday. Headline is expected at 2.9% y/y vs. 2.0% in July, while CPIH is expected at 2.7% y/y vs. 2.1% in July. August retail sales will be reported Friday, with headline sales expected to rise 0.8% m/m vs. -2.5% in July. Last week’s data for July was very disappointing and so the sales data has taken on greater importance.

Next Bank of England decision is due September 23. We expect another dovish hold in light of the softer data. The bank has been warning that inflation could spike higher before returning close to the 2% target. The inflation forecasts from the August 5 decision were 4.0% (2.5% in May) in 2021, 2.5% (2.0%) in 2022, and 2.0% (2.0%) in 2023. These inflation forecasts suggest no hurry to hike and no need to hike aggressively. Updated BOE forecasts won’t be made until the November 4 decision. 2024 will be added to the forecast horizon then and will be very important components of the bank’s forward guidance.


Japan reports some key data this week. August PPI will be reported Monday and is expected to pick up a tick to 5.7% y/y. July core machine orders will be reported Wednesday and are expected to rise 2.8% m/m vs. -1.5% in June. August trade data will be reported Thursday, with exports expected to rise 33.9% y/y vs. 37.0% in July and imports expected to rise 40.0% y/y vs. 28.5% in July. The economy is holding up better than expected in Q3 so far, but the longer the lockdowns continue, the greater the downside risks we move into Q4.

The Bank of Japan next meets September 21-22 and no change is expected. Indeed, the bank is most likely on hold for the foreseeable future. Its latest forecasts see core inflation remaining well below the 2% target through FY23, which means that policy won’t be tightened until FY24 at the earliest. New forecasts will be released at the October 27-28 meeting but are not expected to show any material change with respect to inflation.

Australia reports August jobs data Thursday. Employment is expected to fall -80.0k vs. a 2.2k gain in July, with weakness coming from the extended lockdowns. The unemployment rate is expected to rise 3 ticks to 4.9%, moving away from the 4% level where the RBA sees wage pressures picking up. August NAB business conditions will be reported Tuesday, followed by September Westpac consumer confidence Wednesday.

Last week, the RBA commenced tapering. Some analysts were calling for a delay but we did not believe one was needed. Despite concerns about growth this quarter, Q2 GDP data showed the economy had stronger than expected momentum (0.7% q/q vs. 0.4 expected) as it entered the lockdowns in Q3. The new weekly QE pace of AUD4 bln will be maintained until at least mid-February rather than mid-November, as the bank said the extension was needed due to a delay in the economic recovery and increased uncertainty stemming from the most recent outbreak. Much will of course depend on how the virus numbers look then but we suspect the RBA will continue the tapering process in a measured manner.

New Zealand reports Q2 GDP data Thursday. Growth is expected to slow to 1.2% q/q vs. 1.6% in Q1. After the RBNZ delivered a dovish surprise hold August 18, Assistant Governor Hawkesby later said a 50 bp hike was discussed and that the surprise decision to stand pat was due to fear of bad optics rather than economic risks. He said “We put out a document that would have easily supported putting up the official cash rate last week. It was less about Covid stopping us doing it and it was more about the timing of communicating our policy move -- was the 18th of August the right day as the country went into lockdown.” WIRP suggests a 25 bp hike is fully priced in at each of the next RBNZ meetings October 6, November 24, and February 23. Q2 current account data will be reported Wednesday, where a deficit equal to -3.3% of GDP is expected vs. -2.2% in Q1.

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